A Merchant cash advance is an unsecured small business loan of up to $500,000. If you have a small business, you will face the need of funds to buy new equipment or material, to expand the business, to invest in advertising for improving sales, or simply to smoothly run your business. At such times most small businessmen have to approach a bank for a loan but this is cumbersome as it involves a lot of paperwork, providing information about your business status, what you need the funds for and also a collateral (or personal asset) against your loan.
No Security Or Collateral Needed
In such situations, you can apply for a cash advance, which can be easily availed from lending companies to meet your business related needs. Neither will you have to inform about the status of your business, nor what you want to use the funds for. You also don’t need to give any collateral against the loan and the paperwork involved is very little.
Moreover you don’t need to have a good credit record to get the cash advance. In fact, businessmen with poor credit history can also apply for this loan which is not possible in a bank. In a merchant cash advance, the borrower businessman or merchant enters into an agreement with the lender to sell a percentage of his future credit card receivables at a discount and thus allows the lending company to take a set percentage of his future credit card sales until the entire amount is paid off.
For example, the borrower may sell $10,000 worth of future sales for $7,500, which is a 25% discount.
No Fixed Time Period
There is no fixed time period or fixed monthly payments as with a bank. The borrower pays back the amount as and when he makes the sales in credit cards. If his credit card sales are good then the payback is faster and if his sales slow down, the payback process also slows down since it's a percentage of his future sales that determines how much he pays back each month. With a bank loan, the borrower has to worry about making a fixed monthly payment to the bank regardless of how the sales are in that month.
If they can't make the payment it is a default on the bank loan, which can finally force the bank to eventually take away the collateral that the borrower may have given against the loan. Since there is no time period, there is no interest charged with a merchant cash advance unlike a bank loan. The lender’s profits come from the discount.
With many lending companies available these days, the borrower should thoroughly research the terms and the discount percentage and settle for the most suitable deal. With merchant cash advance your very own business is not just a dream.